Takeover move won't end Virgin's blues

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VIRGIN Blue may have difficulty moving into business travel,
even if Toll Holdings' $4.6 billion bid for Patrick is successful.
If Toll gets control of Patrick, it will sell down its 62 per cent
of Virgin Blue and initiate a shareholding restructure allowing
Virgin Group to lift its stake by 15 per cent, to 40.6 per
cent.

Virgin Group founder Sir Richard Branson has expressed
dissatisfaction with Virgin Blue's policy of not hedging against
fuel price rises and Virgin Group Asia Pacific chief executive
David Baxby says he wants to see the airline move more into the
business travel market.

However, some analysts believe it may be difficult for Virgin
Blue to move into a market dominated in Australia by Qantas. One
analyst, who did not wish to be named, said Qantas dominated the
top end of the business travel market because it was able to tie
domestic and overseas travel in one bundle. Of the top 20
Australian corporate travel accounts, more than 85 per cent would
require an international component, the analyst said.

Typically a large company might put out a tender on $50 million
worth of travel, of which $20 million would be international.
Qantas' international operations enabled it to cater for such
business in a way Virgin Blue was unable to.

Boosting business travel would require Virgin Blue to offer a
frequent-flyer scheme, increase investment in travel lounges,
improve catering and provide a business class in planes. All are
costly and difficult to justify with fuel prices at record levels.
Also, Virgin Blue's recreational travel market is being challenged
by Jetstar.

Mr Baxby said there was ample room in the business travel market
for Virgin Blue to gain a greater foothold. The company could speed
up its purchase of wide-bodied aircraft and improve flight lounges
to help lift its business market share.

Mr Baxby said Virgin Group would be happy with 40.6 per cent of
Virgin Blue and would not, in the short term, be looking to buy
more. Foreign investment rules now prevent Virgin Group from taking
more than a 49 per cent stake in its Australian offshoot, he
said.

Mr Baxby said Virgin Blue would not have to expand its fleet to
cope with the $30 million in air freight business promised it by
Toll Holdings chief Paul Little if the deal went ahead.